Regulatory efforts to reign in digital credit: Case study of evolving regulation in Kenya

This paper charts the rise of digital credit in Kenya. It highlights the data on evidence on the problems of digital credit, including the high cost of credit, overindebtedness, and unfair blacklisting. The paper shows that the many of the proposed gains of financial inclusion that digital credit was meant to provide, have been washed out due to regulatory lags. The paper then charts the course of history of regulating digital credit in Kenya which culminated with the passing of the CBK Amendment Bill (2021) and regulations for digital lenders in 2022. The paper argues that, while these regulations are steps in the right direction, several concerns remain. We argue that by drawing a distinction between different players in the digital credit space, the regulations create a landscape where there is lack of capacity to regulate all the players and also overlapping mandates of different regulators.  Furthermore, while the regulations may reign in egregious loan collection practices, they do not resolve some key issues of cost of digital credit and consumer protection. Recognizing the desire by Kenyan consumers for access to novel forms of credit, we call for a regulatory environment that could facilitate negotiability between digital credit borrowers and lenders.